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The Independent Contractor Revisited
As the federal government and the state governments look for more ways to bring in money, the independent contractor status is a likely place for them to look. After all, by using independent contractors rather than employees, employers don't have to withhold taxes, provide workers' compensation, contribute to unemployment compensation, or provide any benefits such as 401-k programs, health insurance or other benefits. Plus you can use and discontinue independent contractors as needed.
In this age of home-based and "virtual" businesses, the use of outside sources makes a lot of sense. After all, outsourcing a lot of business needs has been done for years and will only increase with growth of small business. Many small businesses don't need full-time employees beyond the owner and a core group. Many requirements can be outsourced to independent contractors who in turn outsource many of their requirements.
It is the use of workers who are classified as independent contractors but who are really employees that can cause legal issues. FedEx Ground has been in the middle of this type of legal dispute for several years. FedEx claimed that their drivers were franchisees and therefore independent contractors; several drivers (and later the IRS) challenged that status, claiming that the drivers were really employees.
Here are some basic distinctions between independent contractors and employees:
- Lack of employers' direction is one major difference. Is the worker left to his or her own devices to do what the particular job requires without direction from the employer?
- Is the worker working primarily for one employer or working for several employers on an as-needed basis?
- Is the worker in the same general business as the employer? A full-time consultant in the same line of business as the employer might be considered an employee. If the employee has his or her own business and also works for other companies, he probably would be considered an independent contractor.
- Just because the worker creates an LLC or an S-Corporation doesn't necessarily guarantee legal classification as an independent contractor.
The federal government and the states are narrowing the definition of an independent contractor. One must be truly independent to be considered an independent contractor. FedEx franchisees (for lack of another term) wear FedEx uniforms, have FedEx logos on their trucks, and deliver FedEx packages on defined routes. However, we understand that they buy their own trucks and can sell their FedEx routes. But remember the old saying: If it looks like a duck, acts like a duck, and quacks like a duck, there is a good chance it is a duck. The battle goes on, but the penalties for violating the status of your people can be very expensive. |
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Buying a Business in a Recession, part 5 of 5
Adapted from an article by Matt Joyner, a partner in the law firm of Bishop, Dulaney & Joyner, P.A. in Charlotte, NC.
Buying a business is a major undertaking in the best of times. In the current weak recovery from a recession, it becomes an even more complicated proposition. There are four important considerations when buying a business in a recession or weak recovery period:
4. Non-competition and non-solicitation agreements- If an owner is selling because he has to sell, it is even more important to get from the seller a binding, enforceable non-competition agreement and a non-solicitation agreement. The seller is nowmore likely to be looking for the next opportunity to get back into business rather than retire. So the buyer has to be aware of what the seller plans to do after the closing. If the buyer can use the services of the seller for an extended transition, the buyer should consider a consulting agreement with the seller whereby the seller agrees to support the new owner's operations in a specified way for a specified time. Regardless, the buyer needs to protect himself from the seller opening a competing business, and from the seller soliciting business from his old customers or suppliers, or soliciting his former employees. The courts regularly tweak and fine tune the law of these types of agreements, so buyers need to work with their attorney to understand the limits they can place on sellers. (Similarly, sellers need to have legal counsel to protect their ability to earn a living after the sale.) |
We hope you enjoy the latest issue of our newsletter, featuring articles about using contractors in your business and buying a business in a recession (the last installment in a 5-part series). Whatever your timeframe, we're here to help you plan, prepare for, and execute successful business transactions. We also welcome your referrals.
